July 1, 2011, 11:19 AM

Chinese police make arrests in an Alibaba.com fraud case

The alleged $6.6 million scam involving global buyers stems from an incident in February.

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Chinese police this week made 36 arrests as part of what authorities said was an e-commerce scam involving listings on Alibaba.com and other sites, according to Alizila, a news site operated by the Alibaba Group. The alleged scammers took in $6.6 million from orders for goods that were never delivered, the report says.

Those arrested posed as suppliers operating on Alibaba.com and several other sites, including Made-in-China.com, EC21.com and ECPLAZA.net. Police in China said the 36 individuals arrested were members of a criminal gang and used fake personal and business identities to open more than 100 supplier accounts on Alibaba.com, a marketplace that connects Asian suppliers with buyers around the world. “That allowed them to pose as legitimate companies selling to overseas business that source goods through the Alibaba web site,” the report says.

Chinese police made the arrests during raids conducted in April in Putian City, located in Fujian province, the report says.

The arrests stem from a fraud incident that Alibaba disclosed in February, an Alibaba spokeswoman says. The fraud involved some 2,300 sellers on Alibaba who took orders from buyers for goods never delivered. Alibaba said those fake sales involved the sale of popular consumer electronics products at unusually low prices with low minimum order requirements. After the February incident, Alibaba.com’s CEO David Wei resigned, though there was no indication he was involved in any crimes.

Alibaba says it has put $1.94 million into a compensation fund for buyers who were victims of the fraud.

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